String interpolation quiz question

After watching "Getting Started With ES2015" under " Using Template Literals" there is a quiz portion that asks what the output would be from:

let name = "Smith";
function formalName(title, name) {
  return `${title} ${name}`;
}
console.log(`Hello ${formalName("Mrs.", name)}. How are you?`);

and at first I thought the answer would be:

Hello Mrs. name how are you?

but the correct answer is:

Hello Mrs. Smith how are you?

I'm stumped and trying to understand the logic. From a top down perspective I think the setting name with Smith is causing it to continue when calling it into the function with console.log? Am I correct that because name was set if the answer were to be Mrs name the function would need to have passed console.log(Hello ${formalName("Mrs.", "name")}. How are you?);?

If someone were to pass ${formalName("Mrs.", "Foo")} the answer would be Hello Mrs. Foo how are you??